Hong Kong is supposed to be a private sector-driven economy. But the zeal with which the government is building up its own financial assets shows its leadership increasingly prefers to follow the Singapore path and keep control of wealth in its own hands to the detriment of private households.
The reason: a mix of political opportunism and the arrogance of fat cat bureaucrats who thinks they are smarter than the private sector.
For sure, Hong Kong's public surpluses are still quite modest compared with those amassed by Singapore's Government Investment Corporation and Temasek. Yet their size is far in excess of any reasonable need for either fiscal or foreign exchange reserves to stabilize the US-dollar pegged currency. They now total some HK$1.1 trillion, or nearly HK$200,000 for every adult permanent resident.
The reserves do receive some public attention particularly at times when, as now, the budget surplus is embarrassingly large for a government that usually pleads poverty – except when it comes to paying enormous salaries and benefits to the bureaucrats and related quasi non-governmental institutions (quangos) that have been proliferating.
But very little attention is paid to the surplus of the Exchange Fund, the investment fund operated by the HK Monetary Authority. Although the HKMA is a government agency, it likes to suggest that somehow its surpluses are its own affair and the public is not entitled to its profits.
The exchange fund pays into government coffers a proportion of its income based on earnings from the government's fiscal reserves it manages. However, these reserves are only about one third of the Fund's total assets, now HK$1.42 trillion. By far the largest portion is represented by its accumulated, undistributed surplus. According to figures released on January 21, that now totals HK$617 billion. Even more remarkably, over the course of 2007 that surplus increased by HK$109 billion. This is public money but it is treated by the HKMA's mega-salaried management as though the public had no right to it.
When assessing public accounts, that sum needs to be added to the likely HK$90 billion or so budget surplus that is likely to accrue during the fiscal year ending March 31. Give or take a few billion, that means that officials over the past year will have squirreled away a total of some $200 billion, an amount equal to one year's total government operating expenditure (budgeted at HK$214 billion for 2007/08). Meanwhile the government continues to tax low-paid domestic helpers, hold welfare payments to the needy below the inflation rate and raise health care charges while refusing to spend a meaningful amount to clean up increasingly hazardous air pollution.
The Exchange Fund's surplus this year may be rather more modest. Much of last year's gain came from the surge in Hong Kong share prices. Its local equity holdings are now HK$184 billion and other equities HK$145 billion. Prices of both could fall back this year – at least if January so far is anything to go by. Yet the underlying question remains: why is the HKMA permitted to keep acquiring equity assets – for example shares in HK Exchanges and Clearing, one of many local monopolies?
Equity holdings make no sense as either fiscal or foreign exchange reserves. Their only function can be as long-term Sovereign Wealth Fund-type investments. But why should Hong Kong have such a thing? This is not windfall oil wealth or a surplus created through the kind of forced savings and state ownership policies of Singapore. This money should be in private hands and invested by them, not by a greedy and increasingly compromised bureaucracy rapidly learning from comrades across the border how to get rich at the expense of the general public.
The attitudes of the HKMA and the Exchange Fund reflect underlying official contempt for the public interest. Lack of scrutiny reflects poorly on legislators (and academics) in a position to ask a lot more questions. Questions may not change anything given the "we know best" approach by Tsang and his minions. But it is long past time to pressure the government to disgorge the billions in the fund's accumulated surplus back to the people.